It was easy money that created the bubble, and I can see the FED using the same tactic to forstall any housing bubble burst.
What if a new “special tax free” mortage backed security was created that paid 3% tax free and provided new 3.x % mortage money for 12 – 24 months to be used exclusively to re-finance action arms or other shakey mortgages.
With governmant guarantees the money would be available, the loans would limit the foreclosures on homes financed with “questionalble” mortgages, and prevent a spiral of downward pressure on housing.
I have no reason to believe that this will happen, but this or something like it could be in the FEDs bag of tricks.